Morning Report – Pulte reports 17% drop in orders 10/24/13

Vital Statistics:

 

  Last Change Percent
S&P Futures  1745.3 3.5 0.20%
Eurostoxx Index 3029.4 12.2 0.40%
Oil (WTI) 96.67 -0.2 -0.20%
LIBOR 0.238 0.000 -0.10%
US Dollar Index (DXY) 79.26 -0.005 -0.01%
10 Year Govt Bond Yield 2.49% -0.01%  
Current Coupon Ginnie Mae TBA 103.7 -0.1  
Current Coupon Fannie Mae TBA 102.7 -0.1  
RPX Composite Real Estate Index 200.7 -0.2  
BankRate 30 Year Fixed Rate Mortgage 4.27    

 

Markes are higher this morning after a slew of generally positive earnings reports, most notably PulteGroup, Ford, and Coca Cola. Initial Jobless Claims came in higher than expected. California is still working through its claims backlog, so that number is probably understated. Bonds and MBS are up small.
 
Homebuilder PulteGroup announced third quarter earnings that topped analyst estimates. New orders were down 17%. On the conference call, they noted that “housing market conditions have changed”, as demand is slowing on higher prices and mortgage rates. Their Washington DC markets, particularly the higher priced markets, were affected by uncertainty over the government shutdown. California is also “softer.” However, they view this as short-lived within a sustained, multiyear housing recovery. Tellingly though, they bought back stock and debt instead of re-investing idle cash back in the business.
 
Bank of America was found guilty for Countrywide’s sins and the government wants $850 billion, stemming from a plan to pay LO’s bonuses on volume. The person who led the plan (dubbed the hustle) may be personally liable for fraud. Damages have yet to be determined. I wonder how much the government “encouraged” BOA to buy Countrywide. In every financial crisis, the first thing any government does is it to force shotgun weddings between the strong and the weak. 
 
Lender Processing Services “First Look” Mortgage Report has delinquencies up slightly (4.2%) month over month, but still down 12.6% year over year. 
 
Cash sales accounted for 49% of all residential sales in September, up from a revised 40% in August according to RealtyTrac. Last year, cash sales were 30% of all residential sales. Short sales accounted for 15% of all sales. REO sales were 10%. RealtyTrac estimates the median price was 174,000, which is vastly different than NAR’s estimate of the median home price which is 199,000.

 

50 Responses

  1. The person who led the plan (dubbed the hustle) may be personally liable for fraud.

    What happens in that case? Big fine? Prison time??

    Pssst, McWing. Second day in a row–you’re getting slow!

    Like

    • What’s wrong with rooting for failure?

      My hope is that Obamacare– not to mention, numerous other initiatives supported by the president — fails for a whole host of reasons. And not only do I have my fingers crossed that Obamacare fails in the way that most policy fails us, but I hope it fails so hard that any residual perception among voters that any part of it was prudent policy is completely eliminated. Anything less may mean that a substantial enough block of Americans will continue to operate under the false impression that top-down technocratic control of their decisions is a good idea. And that, would be a genuine failure.

      Wishful thinking, no doubt. And admittedly, there’s also a self-centered reason to root for your ideological opponents not to succeed. Their misfortune confirms your worldview – one that you’ve probably spent considerable time and effort cultivating. Anyone with a shred of intellectual honesty remains somewhat open to the possibility that they may be wrong; but they are certainly under no obligation to root against their own beliefs. Not even if a president armed with a straw man demands it of them.

      Like

  2. “I wonder how much the government “encouraged” BOA to buy Countrywide.”

    Frontline did a piece on that a while back. If you haven’t seen it, I’d recommend it.

    http://www.pbs.org/wgbh/pages/frontline/breakingthebank/etc/synopsis.html

    Transcript

    http://www.pbs.org/wgbh/pages/frontline/breakingthebank/etc/script.html

    Like

    • jnc:

      I am reading through the transcript you posted, and ran across this:

      PAUL KRUGMAN, Economist, Princeton University: I’m sure that Paulson is sitting there- and he doesn’t strike me as the most reflective guy necessarily, but he must have been sitting there, everybody was sitting there saying, “My God, we may be presiding over the second Great Depression.”

      I wonder if Krugman has ever even met Paulson. I never cease to be struck by what an arrogant, petty, and nasty character Krugman is.

      Like

  3. Lulz.

    @TPCarney: Hopefully the death panels will take this long to work, too. #DoNotGoGently

    Like

  4. J , I live the 1st paragraph of the story, that the Tea Party has destroyed the Republican brand.

    Like

  5. Well, what do you expect from a Enron adviser?

    Like

  6. I know how the GOP can defuse amnesty, just make it computer based and put Sebilius in charge.

    You’re welcome President Obama!

    Like

  7. Scott, believe it or not, I think that was Krugman trying to be sympathetic to Paulson there. The video may convey the nuance better.

    I also do believe that there was real panic in the Treasury Department and the Federal Reserve over these events.

    Like

    • jnc:

      I also do believe that there was real panic in the Treasury Department and the Federal Reserve over these events.

      Yeah, that seems clear. But after seeing that show (or reading the transcript) I honestly cannot understand how you can characterize banks, as you did the other day, as having an “expectation of bailouts in perpetuity”. If the show you linked to is accurate, the major banks not only didn’t expect a bailout, they quite explicitly did not want it.

      Like

  8. “”“I wonder how much the government “encouraged” BOA to buy Countrywide.””

    And my link was wrong. The piece was about Merrill Lynch, not Countrywide.

    Like

  9. I think Obi Wan was bullshitting when he told Darth that “If you strike me town I shall become more powerful than you can possibly imagine.”

    Like

  10. “the major banks not only didn’t expect a bailout, they quite explicitly did not want it.”

    Some did, some didn’t. It would have been better if there weren’t any bailouts at all.

    And I believe that I was referring to the post TARP conventional wisdom.

    Like

    • jnc:

      It would have been better if there weren’t any bailouts at all.

      Yes, we agree on this.

      And I believe that I was referring to the post TARP conventional wisdom.

      This was the context. I guess what I just don’t understand is that the tone of your comments always seems to suggest that you think that in having their activity severely regulated, even to the extent of breaking them up by law (for which you advocate), banks are just reaping what they sowed by seeking government assistance. But they didn’t seek it, and most of them (especially the big ones who are always presented as poster-boys for the problem) didn’t want it when “offered”. So to the extent that current regulation of banks is justified by the past use of TARP, the big banks are essentially victims of the political class, something that libertarians in general are pretty sensitive to and critical of.

      The only people who can put taxpayer money at risk is politicians, so if your motivation is fundamentally to protect taxpayers, then your efforts ought to be aimed at stopping politicians from doing what they do, not stopping bankers from doing what they do.

      Like

  11. This may have been linked here before, but It’s worth a read if you haven’t seen it in light of the BoA results.

    http://mbibaclitigtion.blogspot.com/2013/01/why-bank-of-america-will-lose-on.html

    Like

  12. I cannot get enough if this. The White House is now saying that the deputy CoS either lied to Senate D leadership, or Senate D leadership is so stupid as to mishear plain English.

    http://politicalticker.blogs.cnn.com/2013/10/24/sources-word-of-alleged-rude-gop-comment-came-from-wh-deputy-chief-of-staff/

    Nabor’s goes in two weeks.

    Like

  13. “even to the extent of breaking them up by law (for which you advocate)”

    I view breaking them up as an alternative to micromanaging with regulations. It’s going to be one or the other in the post TARP world.

    Large banks aren’t going to be permitted to do as they please with an implicit taxpayer backstop.

    “the big banks are essentially victims of the political class”

    No they aren’t victims. I’ve concluded that overall relationship is one of a criminal enterprise with corrupt cops.

    I’ve been against TARP since day one. I believe your position has evolved into deciding that in hindsight it was a bad idea, but I’ll let you address it.

    This quote:

    “What I refuse to accept is a situation where there’s minimal regulation and the expectation of bailouts in perpetuity.”

    reflected my view of what you were advocating for with rolling back regulations on the banks while at the same time leaving them at their current size.

    Edit: I’ll concede that in the case of BoA & Merrill Lynch, the governments behavior was egregious and that BoA was the victim there.

    Like

    • jnc:

      It’s going to be one or the other in the post TARP world.

      It doesn’t have to be, any more than the car industry needs to be either micromanaged or broken up because it got bailout money. Also, neither choice would necessarily prevent, or even make less likely, a future political determination to use taxpayer money in a bailout. Neither of these choices accomplishes anything other than to increase government involvement, which as a libertarian I would have thought you would protest.

      Large banks aren’t going to be permitted to do as they please with an implicit taxpayer backstop.

      Then remove the backstop. But in fact even if the backstop is not removed, it still makes no sense to break up the big banks if protecting taxpayers is the goal. The break-up-the-banks crowd always seem to forget that at the height of the crisis when the housing market collapsed, it was actually the big banks (with the exception of Citi) that were strong enough to survive without TARP funds. That’s why places like JPM and BoA were in a position to reject the TARP offer, and had to be forced to take it. The places that found themselves in imminent trouble were 1) investment banks with no deposit base and 2) smaller banks whose revenue stream was largely dependent upon “good” banking activities like, er, mortgage lending.

      No they aren’t victims.

      If your link from earlier is accurate, yes they are. Note that I said they were victims in a very specific context, ie being forced to accept government funds against their wishes, and then having that “acceptance” used as an excuse for the government to take action against them. If I described such a situation to you, leaving out only the name of the entity or the industry to which it belonged, I doubt very much you would call them criminals instead victims.

      I’ve concluded that overall relationship is one of a criminal enterprise with corrupt cops.

      What crime should Jamie Dimon be charged with? That aside, I think this is a totally different issue from whether banks should be broken up or micro-regulated. Unless, that is, your feelings about that issue are more a function of a desire to punish banks for perceived criminality than of a worry about a taxpayer backstop. Which I think is a distinct possibility.

      I’ve been against TARP since day one. I believe your position has evolved into deciding that in hindsight it was a bad idea, but I’ll let you address it.

      I have addressed this here already in the past, but yes, I was originally on the fence, but have since concluded that it should never have happened. I am, I admit, somewhat ashamed of not holding fast to my principles just at the time they were most needed. Live and learn.

      Like

  14. “What crime should Jamie Dimon be charged with? That aside, I think this is a totally different issue from whether banks should be broken up or micro-regulated. “

    With regards to Dimon himself, I don’t know, but presumably there would have been criminal culpability for someone in the organization for things like LIBOR, etc. My position is that if there’s something that justifies a fine and a consent decree, then presumably somewhere along the line an individual was involved in making the decision that lead to that. My position is based on the record of consent decrees and then further violations. I’ll happily concede that some banks have a worse record than others.

    “That aside, I think this is a totally different issue from whether banks should be broken up or micro-regulated. Unless, that is, your feelings about that issue are more a function of a desire to punish banks for perceived criminality than of a worry about a taxpayer backstop. Which I think is a distinct possibility.”

    Nope. It’s based on the commentary from Lanny Breuer about how the DoJ takes economic impact into account when deciding to bring criminal charges, i.e. Too Big For Fraud.

    http://www.pbs.org/wgbh/pages/frontline/business-economy-financial-crisis/untouchables/lanny-breuer-financial-fraud-has-not-gone-unpunished/

    Your retort will probably be that the solution is to elect different people to run DoJ, but I believe that this sort of mindset is pervasive among both parties and indicates the extent of the regulatory capture that has occurred.

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    • jnc:

      With regards to Dimon himself, I don’t know, but presumably there would have been criminal culpability for someone in the organization for things like LIBOR, etc.

      You are generally pretty considered about the things you say, and not, I don’t think, prone to exaggeration or hyperbole. So when you say you think an organization is a criminal enterprise, I take you at your word and do not dismiss it as some emotional overreaction. And “criminal enterprise” is a strong charge, which I assume is why you used it, and is certainly why I object to it. If JPM is a criminal enterprise, I don’t understand how the man who actually runs it can’t be considered the head criminal. And if you have no idea what crimes Dimon is guilty of, I really don’t know how you can go on to consider the organization itself a “criminal enterprise”. It is inconceivable, for example, that you might accuse Al Capone of running a criminal enterprise, but then not have any idea what crimes he might be responsible for.

      My position is that if there’s something that justifies a fine and a consent decree, then presumably somewhere along the line an individual was involved in making the decision that lead to that.

      Perhaps, but that doesn’t make the organization, much less the entire industry, a criminal enterprise. Again, that is a very strong charge. (BTW, you again seem to automatically assume that fines and consent decrees are necessarily “justified” just because of their existence. I do not.)

      It’s based on the commentary from Lanny Breuer about how the DoJ takes economic impact into account when deciding to bring criminal charges, i.e. Too Big For Fraud.

      In the link you provided he was talking about lawsuits, not criminal charges. And his position seems perfectly reasonable to me. How can it make sense for the government to fine an institution into bankruptcy, resulting in hundreds or thousands of lost jobs for innocent employees and the loss of money for other creditors to that company? Even if there are no implications for the wider economy, what he said makes sense to me.

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  15. “Note that I said they were victims in a very specific context, ie being forced to accept government funds against their wishes, and then having that “acceptance” used as an excuse for the government to take action against them.”

    My mistake. I stand corrected and agree with you.

    If there’s one silver lining to the entire episode, I don’t think that any CEO or board will ever go along with this sort of thing again based on “trusting” the government to keep it’s word.

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  16. If there’s one silver lining to the entire episode, I don’t think that any CEO or board will ever go along with this sort of thing again based on “trusting” the government to keep it’s word.

    As long as the government can write a letter and put you out of business, you have to accept the occasional politically-motivated fucking. Especially with this administration.

    I was listening to Bloomberg the other day and some twit was saying as justification that JP Morgan may have not dotted all of their i’s and crossed all of their t’s in the indemnification agreement, and that is their problem, not the government’s. Never mind that most merger agreements are usually negotiated over periods of months, with weeks of due diligence, not over a weekend at the tip of a bayonet.

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  17. It’s the repeated behavior pattern that leads me to determine that the business model for the level of profits that are generated is criminal. These aren’t one off instances. The fact that the government doesn’t, for various reasons, pursue the charges every time doesn’t change the fact that the law was broken.

    See the repeated consent decrees at Citigroup, and JPM’s behavior in the Jefferson County case where they both paid off Goldman Sachs to not bid against them and also then bribed some of the local government officials.

    You seem to always give the bank a pass for this sort of behavior and only place culpability on the government.

    Felix Salmon put it correctly:

    “The profits and the fines share a common cause: the internal behavior which produces massive profits also — eventually — has a tendency to produce massive fines.”

    http://blogs.reuters.com/felix-salmon/2013/10/11/is-jp-morgan-being-unfairly-singled-out/

    Like

  18. “And his position seems perfectly reasonable to me. How can it make sense for the government to fine an institution into bankruptcy, resulting in hundreds or thousands of lost jobs for innocent employees and the loss of money for other creditors to that company?”

    If the company itself has engaged in repeated violations of the law, despite previous enforcement actions, then it’s warranted.

    Fiat justitia ruat caelum

    “BTW, you again seem to automatically assume that fines and consent decrees are necessarily “justified” just because of their existence. I do not.”

    As I’ve said before, I’d prefer trials rather than deals. If the bank isn’t guilty, then they shouldn’t have to pay a fine.

    Like

    • jnc:

      If the company itself has engaged in repeated violations of the law, despite previous enforcement actions, then it’s warranted.

      Be that as it may, I still don’t see how this is an argument for breaking up banks. The concern he cites (and which you dismiss) exists whether the bank is a retail bank, a commercial bank, an investment bank, or a conglomeration of all three. It still seems to me that your desire to break up banks has more to do with punishment for perceived misdeeds than any legitimate concern with protecting taxpayers.

      As I’ve said before, I’d prefer trials rather than deals. If the bank isn’t guilty, then they shouldn’t have to pay a fine.

      I definitely agree, but of course practical reality intrudes on a utopian world. Trials cost time and money, and trials have uncertainty regardless of the underlying truth as it relates to justice. So quite often both sides may have a legitimate interest in coming to a deal, and the fact that such a deal may not satisfy a desire for perfect justice doesn’t make those interests any less legitimate.

      With regard to criminal activity, which seems to be your real concern, how about the following proposal? The government ought not be allowed to impose institutional fines for alleged criminal activity, but must instead criminally pursue the individuals within the institutions that have allegedly committed any criminal acts. If any financial harm has come to anyone as a result of the criminal act, those claims can be pursued via a private civil action against the institution. This would remove the “cost of doing business” aspect of regulatory enforcement which you object to and would force the government to demonstrate individual guilt either by admission or by jury determination. It would also motivate the government to focus its regulatory efforts on stopping serious criminal misdeeds, instead of proliferating mounds of petty and picayune rules that do nothing more than act as a potential stream of revenue for the government.

      It’s the repeated behavior pattern that leads me to determine that the business model for the level of profits that are generated is criminal.

      You are just making an entirely unjustified generalization. In 2012 JPM took in just under $100 billion in revenues. I would venture a guess that you couldn’t name the source of even 10% of those revenues, much less be able to know that the model (actually models) which generated them was “criminal”. Again, if you can’t name a single crime committed by the guy who is actually in charge of developing and implementing the business model(s), I don’t know how you can in good conscience declare the whole thing “criminal”.

      You seem to always give the bank a pass for this sort of behavior and only place culpability on the government.

      I don’t think that is a fair characterization at all. As far a I can remember, you and I have only ever discussed the Jeff County and Libor issues. I don’t remember ever even discussing Citibank. With regard to Jefferson County, I never claimed that no one at JPM ever did anything wrong or worth pursuing. I was simply skeptical/critical of Taibbi’s framing of things (for obvious reasons…it was Taibbi) and I argued that when corrupt government officials demand a payoff in order to do business with the government, culpability for the payoff lies more with the government officials than with those of whom the payoff was demanded. I would be surprised if, as a general principle and outside of the involvement of a bank, you disagree with that. With regard to Libor, again I never argued that no one did anything wrong or worth pursuing. I simply tried to explain that a) LIBOR was never some objectively knowable single rate, but always had an element of human judgement, b) the pre-crisis daily history of LIBOR did not show any obvious reason to suspect that any attempted manipulation was particularly successful, and c) innocent bystanders were just as likely to have benefited from as to have been harmed by any actual manipulation.

      Throughout these explanations I have repeatedly qualified what I said to make it clear that I am not suggesting that there was no wrong-doing going on or that no one should be punished. What I do not do, however, is generalize from any particulars in order to condemn the entire institution or industry, which I think is absurd. Banks are staffed with human beings who are no more or less prone to violating rules than those at other institutions in other industries staffed with human beings. If banks seem to be more prone to breaking rules than other industries, it is almost certainly simply because banking is one of the most heavily regulated industries in the nation, and therefore the chances of falling afoul of a rule is a lot higher.

      BTW, in my search for some of my old comments, I ran across this comment of yours in which you say “To my way of thinking, we are well past the time to undertake an antitrust investigation with the end goal of breaking up the largest Wall Street Banks.” This comment came in the context of a discussion about the LIBOR scandal which simply fuels my suspicion that your desire to break up the banks has a lot more to do with trying to punish banks for perceived misdeeds than it has to do with protecting taxpayers from potential bailouts.

      Like

  19. The True Libertarian way to handle road construction: Road Choice.

    http://www.washingtonpost.com/opinions/cuccinellis-plan-would-free-us-from-transportation-tyranny/2013/10/24/995d4c9e-3bee-11e3-b0e7-716179a2c2c7_story.html

    Road choice would also afford self-determination on repairs. Why should some bureaucrat decide when — and even whether — to fix my street? Each individual should have the right to choose whether to spend hard-earned dollars on roads or on other priorities, such as potato chips and Caribbean vacations. Plus, if we let the potholes blossom, we might slow down the jerks who think our street is part of the Indy 500 track.

    Small government. Individual responsibility. Liberty. Road choice.

    Like

    • yello:

      The True Libertarian way to handle road construction: Road Choice.

      Roads are an archetypal public good, and as such are a good example of a good in which government involvement can make sense, even from a libertarian point of view. But that doesn’t mean that it makes sense for any government to be involved. It can certainly make sense for responsibility to be pushed down to more local rather than elevated to more remote government.

      There is a CT state road, route 106, which goes through my town. But in fact route 106 isn’t really a single road. It is a route consisting of a series of roads with lots of left and right turns that winds its way through several towns in CT. The state has just designated this particular route a state road. The part of 106 that enters my town border in the south and leads into the actual village is a complete disaster…unfilled pot holes, over-filled pot holes, etc. Most people in the town have to drive down this road every day…it is the main artery into and out of town in the south, which also leads to the highway. However, the local government is not allowed to fix the road because it is designated as a state road. So it has remained a disaster for years because the state hasn’t gotten around to fixing it, despite the fact that the people who actually use the road would gladly pay to have it fixed. Makes sense to you?

      BTW, when I lived in England I lived on a “private estate” where the roads were owned by the residents, not the government, in much the way the woman describes in her letter, although for road fixes we would hire someone to do the work rather than break out our own wheel barrows. It worked just fine. Interestingly, despite the fact that the residents were happy to maintain the roads themselves, the government was institutionally designed to want control of it, and every year the government required the estate to jump through hoops in order to maintain private ownership of the roads, including actually manning the front gate and restricting access to the estate for at least one day every year. If we ever failed to do so, the government would declare the roads public and would take ownership, and hence the responsibility of maintaining them. A good example of how government often operates simply to enhance its power and not for the benefit of “the people”.

      Like

  20. I’ll refer the right honorable gentleman to the comments I made some months ago:

    “As a libertarian, are you really a fan of antitrust laws?”

    Actually yes. Once corporations get that large, they can successfully execute regulatory capture to erect barriers to entry and other market distorting regulations to enable rent seeking. My main point though is not necessarily to break them up for the crime of just being big, but at this point, the repeated abuses and violations necessitate a response more robust than just fines that are less than one quarter’s profit and another consent decree with the SEC. I believe we’ve crossed the threshold where it’s not just a few bad apples or rogue traders, but a systematic, cultural problem with the organization itself. The two remedies are to break up the larger banks, or dramatically more intrusive regulation turning them in effect into public utilities. I’d prefer the antitrust remedy to micromanagement by regulator.”

    Like

  21. I think with Dodd-Frank, you are getting micromanagement by regulator.

    The option of no regulation at all and keeping the banks at their current size isn’t going to be politically acceptable in a post-TARP world.

    Like

    • jnc:

      The option of no regulation at all and keeping the banks at their current size isn’t going to be politically acceptable in a post-TARP world.

      I don’t think it makes sense to blame TARP, since it wasn’t politically acceptable even prior to TARP. TARP is just the excuse that politicians and demagogues are now using to justify yet more increased involvement. I also think it is pretty crazy to think that breaking up the banks would be accompanied by less regulation. Indeed, I’m not sure how it could be done without even more regulations.

      This actually works fine for me,

      Great. We have found a model on which we can agree.

      It’s also a function of size and market share. Hence why I subscribe to the antitrust “heresy” in my libertarian ethos. There has to be a market for the free market to work.

      There are many sectors of the banking industry…retail, commercial, investment, etc. Which sector do you think is characterized by an absence of competition requiring the application of anti-trust regulation?

      Like

  22. “With regard to criminal activity, which seems to be your real concern, how about the following proposal? The government ought not be allowed to impose institutional fines for alleged criminal activity, but must instead criminally pursue the individuals within the institutions that have allegedly committed any criminal acts. If any financial harm has come to anyone as a result of the criminal act, those claims can be pursued via a private civil action against the institution. This would remove the “cost of doing business” aspect of regulatory enforcement which you object to and would force the government to demonstrate individual guilt either by admission or by jury determination. It would also motivate the government to focus its regulatory efforts on stopping serious criminal misdeeds, instead of proliferating mounds of petty and picayune rules that do nothing more than act as a potential stream of revenue for the government.”

    This actually works fine for me, if it was actually followed through. It also implies that there can’t be any kind of claim of privilege between the institution and the individual, i.e. the institution would have to comply with a subpoena for any and all records related to individual criminal wrongdoing.

    I happen to think that one of the reasons that Goldman Sachs worked better as a partnership than a corporation was the liability for the individual partners.

    Like

  23. J, regulatory capture will always exist. The more regulations you make, the more chance of capture. Not only does is perpetuate itself, it increases opportunities with each new regulation to check it’s previous capture. As a Libertarian, shouldn’t your default position be to dismantle the regulatory state? Anything else is just surrendering to the mindset that central planning can fix the distortions it created.

    Like

  24. It’s also a function of size and market share. Hence why I subscribe to the antitrust “heresy” in my libertarian ethos. There has to be a market for the free market to work.

    Julian Assange captures part of my view:

    “So as far as markets are concerned I’m a libertarian, but I have enough expertise in politics and history to understand that a free market ends up as monopoly unless you force them to be free.”

    http://www.forbes.com/sites/andygreenberg/2010/11/29/an-interview-with-wikileaks-julian-assange/5/

    I think he goes a bit far in implying that a market will always end up as a monopoly, but they certainly can depending on barriers to entry, etc.

    And like I said, I’d prefer breaking up the banks to smaller entities and having less regulation of their activities because the smaller ones can be allowed to fail, than the current situation with TBTF banks and the micromanagement of Dodd-Frank.

    Like

  25. But ultimately who puts up the barriers to entry? Can we both agree those barriers are not erected to protect anybody but the existing structure. If there is any regulatory concern on the part of government, shouldn’t it be in preventing barriers to entry?

    Like

  26. Well yes. I’m all for getting rid of barriers to entry, not for pretending that they don’t exist.

    I think Steve Pearlstein described the current state of affairs pretty accurately here:

    http://www.washingtonpost.com/wp-dyn/content/article/2010/08/19/AR2010081906574.html

    Like

  27. Investment. See the Steve Pearlstein piece above.

    Retail is pretty competitive, especially with Credit Unions, etc.

    Like

    • jnc:

      Investment.

      OK, below are the 10 largest investment banks:

      JPM
      BoA
      Goldman Sachs
      Morgan Stanley
      Citi
      Credit Suisse
      Deutsche Bank
      Barclays
      UBS
      Wells Fargo

      JPM has the largest market share of global investment banking revenues at 8.7%. The top 10 have an average market share of 5.5%. Can you name another market that you would call uncompetitive, and would therefore advocate for anti-trust action to be taken to break apart the market participants, where the top market share of any one market participant was less than 10%, and the average market share of the top 10 market participants was no more than 6%?

      See the Steve Pearlstein piece above.

      See Pearlstein’s solution to the problem he perceives: “All it would require is a determination by major companies to drive as hard a bargain on behalf of their shareholders as the Treasury has now done on behalf of taxpayers.”

      Like

  28. “This actually works fine for me,

    Great. We have found a model on which we can agree.”

    And you’ll be happy to know that Matt Taibbi is on board too, in his usually colorful way:

    “Conversely, one has to consider the powerful deterrent to further wrongdoing that the state is missing by not introducing this particular class of people to the experience of incarceration. “You put Lloyd Blankfein in pound-me-in-the-ass prison for one six-month term, and all this bullshit would stop, all over Wall Street,” says a former congressional aide. “That’s all it would take. Just once.””

    http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216

    I don’t even think it would require sending the CEO to jail, but rather as you suggest the individuals most directly responsible.

    Like

    • jnc:

      And you’ll be happy to know that Matt Taibbi is on board too,

      I am not so sure. Remember that half of the model requires that the government not impose fines on the corporation. I doubt Taibbi would go for that.

      Like

  29. But the corporation is still liable for civil penalties from wronged parties.

    Also

    “of global investment banking revenues at 8.7%”

    What’s the breakdown for US banking revenues?

    Like

    • jnc:

      But the corporation is still liable for civil penalties from wronged parties.

      Of course. Just not regulatory fines.

      What’s the breakdown for US banking revenues?

      I looked for that. It wasn’t available as a consolidated number, but it was available when broken down by various IB services. So, for example, for debt capital markets business in the US region, the top 5 breakdown was this:

      JPM 11.6%
      Barclays 9.7%
      BoA 9.5%
      Citi 8.9%
      Deutsche 7.3%

      For others, see equity capital markets, syndicated loans, and M&A. Excluding M&A, the greatest market share for any one institution in any one area of business in the US sector was 13.3% (JPM in syndicated loans). I’ve excluded M&A only because I don’t understand the numbers…they add up to far, far more than 100%, so I can only assume that they include multiple participants for a single deal. For example, the top 5 for M&A were:

      JPM 41.3%
      GS 38.6%
      BoA 33.2%
      MS 31.7%
      Barclays 28.9%

      The next 5 combined summed up to over 67%.

      Like

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